How to keep your crypto safe? If you have come to ask yourself this question, then congrats! You’re getting the crypto spirit! Here you will understand what are crypto wallets, how they work and which ones are better in terms of security and ownership.
How Crypto Wallets Work?
A cryptocurrency wallet is a tool that allows you to interact with the blockchain network. Think about our previous mailbox analogy: we could say that the crypto wallet is actually the mailbox itself, since it allows you to “interact” with the Postal Service. Without it, you could not receive any letters. Besides, when you install a mailbox in front of your house, you automatically create an active postal address and letter slot, as well as a private key to unlock the box. The same goes with crypto wallets: when you create a crypto wallet, you automatically generate a set of public and private keys.
There are different kinds of crypto wallets on the market — some great, some less so. They can take several forms, such as a physical device, a software program or a digital service. When it comes to crypto wallets, they are divided into two categories: “hot” and “cold” wallets.
Hot Wallet VS. Cold Wallet
Hot wallets are digital wallets that are easily accessible via mobile devices, laptops, and desktops. Those include crypto exchanges, online and software wallets.
Through user-friendly interfaces, you can easily transfer and manage your crypto assets, which makes them very attractive for beginners. However, some of these wallets are operated by third-parties. Like with crypto exchanges, which means that they are in control of the private keys associated with your assets stored in the wallet.
In addition, hot wallets are exposed to the Internet, making them appealing targets for hackers to subvert the security measures of the administering third-party and steal users’ funds. Moreover, if your computer or smartphone gets hacked, or if you lose them, your funds are at risk.
A Cold wallet refers to physical (usually small) objects, such as a hardware device, in which you can store your private key. Contrary to hot wallets, they operate in an offline environment while guaranteeing access to your funds at any time. As they are completely offline, cold wallets provide a greater level of security. However, they remain less convenient in terms of accessibility as you have to connect them before being able to manage your assets.
Focus: The Pros and Cons
Beyond the hot/cold dichotomie, you have subcategories of wallets. Each of them having pros and cons. In order to guide you in your crypto security journey, let’s quickly review them all.
Exchange and online wallets
They are hot wallets accessible through websites. Both are easy for beginners as they offer convenience. However, as previously discussed, they do not allow you to own your private keys, i.e. your crypto assets. And they are prone to hacks, online threats and virus attacks. Therefore, they have a lower level of security and limit your freedom.
They are hot wallets accessible through a dedicated desktop or mobile app. While being safer than web wallets, they are under the threat of malwares and hacks.
Hot wallets are highly popular for mobile users and conveniently transfer small amounts of cryptocurrencies. However, users should never store vast sums in hot wallets. Treat hot wallets as you would treat a physical wallet, where you only keep small sums of cash at a time.
They are cold wallets and the most secure alternative so far. Hardware wallets are physical devices used for storing your private key in an encrypted, offline environment. Put simply, hardware wallets allow you to perform all your operations when connected to your computer or phone, without ever letting your private key “out”, on the Internet or on your device.
Therefore, your private keys remain safe from online hacks or virus threats while managing or transferring your crypto assets. That’s why hardware wallets are not vulnerable to such cyberattacks, unlike exchanges and other hot wallets.
By using a hardware wallet, you ensure ownership and full control over your assets as you are the only one in charge of your money and own your private keys. There is no third party involved.
Hardware wallets, like Ledger, are the flagship standard for security. Users, exchanges, and projects all favor hardware wallets as their long-term storage solutions for cryptocurrency assets.
We could say that this is the old-school method: a piece of paper on which you write your private keys. Being totally offline, they are also very safe. But as you might guess, they are easy to lose and easy to damage. Thus, not convenient at all.
When it comes to comparing the different crypto wallets, there is an ongoing debate. However, among all the possible criterias to judge and start the discussion, the only valid one should be security, way beyond price, looks or convenience. This is not only our view as a crypto security company, but also a vision shared by the community.
As nearly everything in crypto, hardware wallets are mainly about getting used to them. But we’ve got your back on that one too. Just check our next and last article!